Stocks climb, dollar falls as Fed holds rates steady

NEW YORK (Reuters) - U.S. stocks rallied and the dollar index eased further on Wednesday after the Federal Reserve left U.S. interest rates unchanged, keeping its low-rate environment intact for now.

Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., September 15, 2016. REUTERS/Brendan McDermid

In a statement following a two-day policy meeting, the U.S. central bank signaled it could tighten monetary policy by year-end as the labor market improved further, but Fed policymakers cut the number of rate increases they expect this year to one from two.

They also projected a less aggressive rise in rates both next year and in 2018, according to the median projection of forecasts released with the statement.

The Fed has held its target rate for overnight lending between banks in a range of 0.25 to 0.50 percent since December, when it raised borrowing costs for the first time in nearly a decade.

“I think the market was expecting a more hawkish hold and instead it got a mildly hawkish hold. And you could argue the (stock) market was satisfied that you didn’t see a Fed anxious to raise rates dramatically,” said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey.

Earlier, the Bank of Japan overhauled its monetary policy to target interest rates.

The BOJ maintained its 0.1 percent negative interest rate, but abandoned its base money target. Instead, it set a “yield curve control” under which it will buy long-term government bonds to keep 10-year bond yields around their current zero percent.

The Dow Jones industrial average closed up 163.74 points, or 0.9 percent, to 18,293.7, the S&P 500 gained to finish 23.36 points, or 1.09 percent higher, to 2,163.12, while the Nasdaq Composite ended up 53.83 points, or 1.03 percent, to close at 5,295.18, a record high.